IIFL Capital Services Limited (IIFLCAPS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IIFL Securities Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R Venkataraman, Managing Director, IIFL Securities. Thank you, and over to you, sir.

Thank you, and good afternoon, everybody. Thank you for joining us on this Q1 FY '24 analyst call for IIFL Securities. I am R Venkataraman, and I'm accompanied with my colleague, Ronak Gandhi, who's the CFO. Once again, thank you for joining us today. And despite the continued headwinds in the global markets, India's macroeconomic stability is quite reassuring. IMF has also increased India's GDP forecast for FY '24 from 5.9% to 6.1%, which is basically reflecting the strong macroeconomic situation India is in compared to rest of its peers. We also have a favorable demographics coupled with the focus of the government on building physical and financial digital administrative capacity through the mantra of reform, perform and transform. And all this augurs well for India on a long-term basis. And this is reflected in the performance of the stock market indexes also. Nifty within kissing distance of 20,000, which is a lifetime high. At IIFL Securities, our focus is to capitalize on those market opportunities by making investments in strengthening our research capabilities, technology abilities and also making sure that our [ clients are ] protected. This -- we also expect in the days to come the affluent segment will grow very fast, and hence, our renewed strategy is to focus on catering to the needs of the affluent segment. We are pleased to inform that our investment banking capabilities are getting recognized. We are yet again the #1 banker for equity IPOs in India as per PRIME Database. And our investment banking division completed 9 deals across capital markets, debt and private equity. Overall, our performance for first quarter has been quite good. Business outlook is positive. Coming to specific numbers. Consolidated revenues came at INR 411 crores, 39% up year-on-year and flat on a quarter-on-quarter basis. The year-on-year basis, brokerage income has risen 22%, INR 206 crores versus INR 175 crores. The financial products, distribution income had doubled, INR 85 crores versus INR 41 crores. And effectively, the key drivers are obviously sale of AIF, PMS, health and insurance. Our insurance business continues to show traction. And investment banking has been, I would say, icing on the cake, INR 55 crores in this quarter versus INR 30 crores approximately for the last year. On a quarter-on-quarter basis, again, investment banking has risen 71%, INR 55 crores versus INR 32 crores. Our distribution income -- our financial product distribution income has fallen down 11%, INR 85 crores against INR 95 crores, primarily because of insurance -- peak of insurance in the last seasonally peak quarter -- January, February, March quarter. And brokerage income has been virtually flat. Other income has decreased to INR 1.91 crores because of mark-to-market losses on investments. Coming to expenses. Employee cost was virtually unchanged quarter-on-quarter and has increased 4% on a year-on-year basis. The finance cost has been up 8% quarter-on-quarter and 12% Y-on-Y basically because of increase in the interest -- overall borrowing cost. Then admin cost has increased 15% quarter-on-quarter, 63% year-on-year basically because of increase in sub-broker partners and also an increase in technology and -- technology costs. Our assets under management in custody is INR 1,47,000 crores, which is approximately INR 20,000 crores in equity and INR 1,20,000 crores in custody assets. Average yearly turnover was -- for the first quarter was INR 2,30,000 crores, which was about INR 1,655 in cash and INR 2 29,000 crores in derivative segment. Figures for the previous quarter was INR 1,95,600 crores, which was INR 1,600 crores approximately in cash and INR 1,94,000 in derivatives segment. I'll come in to other updates. One is the update of scheme of arrangement within IIFL Securities and 5paisa. The Board of Directors on sixth of December 2022 had approved transfer of IIFL Securities' online retail trading customers to 5paisa Capital. As of now, we are awaiting for NOC from the exchanges and SEBI. As and when it happens, then other steps in the process will take over -- we'll take. Second thing is about the order of SAT. SEBI's mandate order dated 19 June prohibited the company from onboarding new clients for 2 years as a stockbroker. This is pertaining to inspections carried out for different periods from April 2011 to 2013. And this -- the argue was that the enhanced calculation of [indiscernible] dated 26/9/2016 was made effective on first of July 2017, and this application we think was unfairly applied to us on introspective basis. And Securities Appellate Tribunal, SAT, has stayed this order. And I think it currently this matter is [indiscernible]. More importantly, we'd like to reiterate that this [ own assurance in its ] very own order imposes restrictions that even SEBI has not found anything wrong subsequent to the enhanced circulation -- circular dated [indiscernible] 2017. As per the order, I find no instance of [indiscernible], which has occurred subsequent to the implementation of the enhanced circular dated September 26, 2016. The second was -- in the matter of NSEL, IIFL commodities was a member of the National Stock Exchange -- National Spot Exchange. And in 2013, if you remember, NSEL had defaulted in its settlement obligations to investors and our clients' money, about roughly to INR 279 crores was held. As you are aware, the market -- the matter is under investigation by EOW, ED, SEBI, SFIO and other people also. Through IIFL, commodities acted like its broker for the investors of NSEL and just facilitated execution. And as a registered broker as per the bylaws, rules and circulars of NSEL, NSEL was a contract party in its guaranteed settlement of trade and the same was confirmed by the erstwhile government regulator, FMC, also by its audit dated 2017 -- December 17, 2013. Under the [indiscernible] code on sixth of May directed attachment of properties of IIFL for repayment. And this -- we are pleased to say that the Honorable Bombay High Court has stayed this. And now again, this matter is also [indiscernible]. We would like to reiterate that the company had transfer and received some clients to NSEL and had not retained any part of it. And hence, we have not accepted or taken any deposit from customers. NSEL has responded for repayment and report and the entire obligation is towards that. With this, I come to the end of my opening remarks, and I'll be more than happy to take any questions that you have. Thank you so much for giving me a patient hearing.

[Operator Instructions]

Actually, if any of them have any questions later, also they can send an email to our Investor Relations and we'll be more than happy to answer all questions.

We do have 1 participant in queue, sir. [ Prane ] from [ J&J ] for the next question.

Two questions. One is regarding this, how quickly do we expect this transfer to happen to 5paisa and allotment of that share? And in the ratio, basically it's fixed like we are supposed to receive 1 share of 5paisa for all 50 held. Is that based on...

And yes, that is fixed. That is not what [indiscernible]. And as of now, we are waiting for approvals, and I don't know how long those will take. So once approval comes, then the entire scheme should be happening.

Okay. And another question is, can you throw some light on the real estate piece, basically in terms of sales or in terms of valuation.